Arbitration clause takes the fun out of Title VII claim

Goldman Sachs employees sued their employer, alleging a pattern and practice of sex discrimination in promotions, compensation and other terms and conditions of employment. The plaintiffs wanted to bring a class action. The case cannot proceed in court because of an arbitration clause.

The case is Parisi v. Goldman Sachs & Co., decided on March 21. The arbitration clause reads:

any dispute, controversy or claim arising out of or based upon or relating to Employment Related Matters will be finally settled by arbitration in New York City before, and in accordance with the rules . . . of, the New York Stock Exchange, Inc. (“NYSE”) or . . . the National Association of Securities Dealers (“NASD”). If both the NYSE and NASD decline to arbitrate the matter, the matter will be arbitrated before the American Arbitration Association ... 

The agreement defines “employment related matters” as “matters arising out of or relating to or concerning this Agreement, your hire by or employment with the Firm or the termination thereof, or otherwise concerning any rights, obligations or other aspects of your employment relationship in respect of the Firm.” Despite this clause, the district court denied Goldman Sach's motion to remove the case from federal court into arbitration because the agreement's preclusion of class actions would make it impossible to arbitration a Title VII pattern-or-practice claim and it therefore waived a substantive right under Title VII.

Not all Title VII claims can be forced into arbitration (most plaintiffs prefer court and jury trials to arbitration). Arbitration is inappropriate if it effectively precludes a Title VII claim. Plaintiff argues that the arbitration clause is invalid because arbitration would prevent her from vindicating a statutory right. But the Court of Appeals (Parker, Raggi and Lynch) finds that there is no such thing as a substantive right to a pattern-or-practice claim, and the case goes to arbitration.

"Even claims arising under a statute designed to further important social policies may be arbitrated because 'so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.'" Congress has allowed Title VII claims to be arbitrated. The Court of Appeals rejects plaintiff's argument that the arbitration clause prevents her from enforcing a right under Title VII. Pattern-and-practice claims are not freestanding claims but merely a method of proof. Plaintiff can still get relief under the statute, the Second Circuit says, and she have to do it through arbitration.